SEBI has proposed the introduction of a new product category which is riskier than your traditional MFs – called NAC or the New Asset Class. This differentiated category is aimed to bridge the gap between Mutual Funds and PMS, and provide investors with greater flexibility and higher risk-taking capabilities within a regulated framework
The NAC is neither a mutual fund nor a PMS. It will have a minimum ticket size of Rs 10 lakh per investor. This means an investor must invest a minimum of INR 10 lakh, across one or more investment strategies, under the New Asset Class offered by an AMC/MF. So it is like a Mini-PMS for Retail, and is structurally, positioned between MF and PMS (which has a Rs 50 lakh entry barrier).
As per SEBI, this threshold shall attract investors with Rs 10-50 lakh investible funds, who are today being drawn to unauthorized and unregistered portfolio management service providers. Also, those who (wanted to but) did not have the full Rs 50 lakh to get into PMS, can now split the money (say they had Rs 30-40 lakh) across 3-4 new products (NACs) funds and invest here.
Too early to say but given that it will be more tax-efficient and lower cost than a PMS/AIF (and like MFs), it may be of interest to many who wanted to explore PMS strategies but didn’t have Rs 50 lakh for PMS, and/or didn’t like tax headaches of PMS/AMF.
Interestingly and Unlike MF/PMS which are not allowed to, this new product will be allowed to use derivatives for non-hedging too. Examples include Long-short funds or Inverse ETFs. As per the regulator, this will provide more flexibility and risk-taking in investments and potentially generate higher returns for its investors.
Only mutual fund AMCs can offer this product and not PMS or AIF managers. And even then, only those AMCs will be able to offer this product which have a minimum of 3 years of operational experience and an average AUM of more than Rs 10,000 Cr in the preceding 3 years. There are some flexibilities in rules to allow other AMCs or senior fund managers to launch these products as well if they are unable to meet these criteria.
The AMCs will have to use different names to offer this new product so as to not confuse investors. For example, they can call them ‘Investment Strategies’. This new nomenclature (or other ones decided later) will help differentiate between the MF schemes currently being offered by the AMCs and the new products under the new category.
This is still in the consultation phase and SEBI has invited comments. But from what I understand initially, it will help widen the field (and deepen the market to some extent) by also allowing AMCs to participate in derivatives actively. Also, it will allow some of the adventurous AMCs to explore unique strategies. This shows that Indian markets are maturing as more and more sophisticated (or complex!) products being made available gradually.
For obvious reasons, if it sees light of the day, this product will not be suitable for everyone and hence the minimum ticket size. But interesting development nevertheless as the industry evolves! Your simple mutual funds still remain a super-product for most investment requirements!
You can download the consultation paper here or from SEBI’s website here.
Related Read – Mutual Funds vs PMS